Disasters Reveal Weaknesses in SBA Loan Programs

The Small Business Administration (SBA) released figures on its post-9/11 disaster lending program showing that $245 million of the total $1.2 billion lent is currently in default, representing a 20.4 percent default rate. More than 10,000 companies approved for SBA direct loans received a two-year grace period, between 2001 and 2003, to start making payments and now these defaulted loans are coming to light according to the Associated Press. Another SBA loan program, the Supplemental Terrorist Activity Relief program experienced a 5 percent default rate on $3.7 billion lent.

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The largest SBA write- off occurred after the 1992 Los Angeles riots with a default rate over 34 percent, however, the historical default rate for other government disaster lending programs is about 5 percent according to the Associated Press.

The SBA has currently written off less than $10 million of the total $245 million default, the Associated Press reports adding that SBA officials will make sincere efforts to collect collateral, negotiate settlements with borrowers, and bring delinquent loans current in order to reduce the default total.

SBA spokesman Michael Stamler told the Associated Press that the $245 million “does not represent the actual loss to the government, which, because of settlements and recoveries on collateral, will be less than this amount.”

Rep. Nydia Velazquez (D-NY) has requested the SBA extend the period of time for companies to begin making their loan payments in order to ease their burdens, according to the Associated Press. Velazquez said to the Associated Press, “A lot of these companies and just beginning to have to pay back their loans. What is the government going to tell them when they can’t?”

More troubling news is found in another recently released SBA report concerning the progress of the disaster loan program to assist victims of Hurricane Katrina. USA TODAY reports that the processing of SBA disaster loans in the wake of Hurricane Katrina is lagging behind the agency’s previous performances and current expectations adding to the disaster. The SBA report said that of the 53,948 loan applications received, 1,049 have been approved, and 58 checks, totaling $533,400, have been sent out. The report also spoke of bungled emergency housing and questionable contracting practices according to USA TODAY.

USA TODAY reported two weeks ago that unprocessed loan applications from businesses, homeowners, and renters in the disaster area amounted to 24,488. Now that number has doubled. USA TODAY reports that unidentified SBA staff member has said part of the problem on the SBA’s new loan-processing computer system.

USA TODAY reports that Rep. Velazquez has also requested that the General Accounting Office investigate complaints about the $23.7 million system. USA TODAY reports the SBA inspector general’s office confirms an audit of the system is currently underway. The SBA announced last week that it has 2,300 people working up to 14 hours a day to assist Katrina victims, according to USA TODAY and that some of the extensive loan paperwork is also being waived.

In order to help businesses suffering less damage from Katrina, the Mississippi Sun Herald reports that smaller loans, those under $100,000, are being given priority. The SBA’s strategy is that these businesses are closer to reopening than those with larger loan requests according to the Sun Herald.

“Loans under $100,000 are being moved to the top of the stack. It’s hard for a community to get back to any kind of normalcy unless businesses can get back up and running,” SBA spokesman Ron Veltkamp told the Mississippi Sun Herald.